Under The Bonnet, 4MASS Spólka Akcyjna's (WSE:4MS) Returns Look Impressive

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in 4MASS Spólka Akcyjna's (WSE:4MS) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for 4MASS Spólka Akcyjna:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.34 = zł20m ÷ (zł65m - zł6.9m) (Based on the trailing twelve months to June 2023).

Therefore, 4MASS Spólka Akcyjna has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 9.3%.

View our latest analysis for 4MASS Spólka Akcyjna

Historical performance is a great place to start when researching a stock so above you can see the gauge for 4MASS Spólka Akcyjna's ROCE against it's prior returns. If you're interested in investigating 4MASS Spólka Akcyjna's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For 4MASS Spólka Akcyjna Tell Us?

The trends we've noticed at 4MASS Spólka Akcyjna are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 34%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 1,195%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 11%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

In Conclusion...

To sum it up, 4MASS Spólka Akcyjna has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 13% to its stockholders over the last three years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing to note, we've identified 3 warning signs with 4MASS Spólka Akcyjna and understanding them should be part of your investment process.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.